Railroads and coal

Rail transportation and coal-fired power generation are heavily interdependent, with railroads accounting for 70 percent of coal shipments to power plants, and coal accounting for about 20 percent of rail business.

Alternative shipping methods include truck, barge, and conveyor. Truck shipping is considered uneconomical beyond 50 miles; barges are limited by the reach of navigable waterways; conveyors only work in cases where the mine is adjacent to the plant.

In March 2011, America's major freight railroads said they plan to invest $12 billion in their networks in 2011, but may change their plans depending upon impending coal regulations.

BNSF Joint Line
Approximately 40% of the coal used in the United States comes from 18 immense mines in the Powder River Basin in northeastern Montana. The 103 mile “Joint Line” in Wyoming, the artery through which most Powder River Basin coal reaches the rest of the United States, is the busiest stretch of railroad in the world. The Joint Line handles over 60 loaded coal trains a day, each train more than a mile long. After it passes through the Joint Line, coal then travels over a handful of rail corridors to power plants. the Joint Line is the busiest stretch of railroad in the world. Most Powder River Basin coal originates with the Union Pacific Railroad or the Burlington Northern Santa Fe Railway.

In early May 2011 it was announced that Burlington Northern Santa Fe railway would impose a new tariff for coal dust suppression on its coal train fleet. The tariff came after a March 2011 ruling by the U.S. Surface Transportation Board. The ruling capped a year long battle between the railroad and utilities over just who is responsible to pay for dust suppression along thousands of miles of rail used to connect the Powder River Basin to coal-fired power plants across the U.S. Coal customers will now have to pay an extra few million dollars per year to help control coal dust from loaded trains leaving Wyoming.

DM&E Project
In 1997, the Dakota, Minnesota & Eastern Railroad (DM&E), proposed in 1997 a new route into the Powder River Basin. The project would involve upgrading 600 miles of existing rail lines and building about 250 miles of new track. If completed, the DM&E project would open a new outlet for PRB coal into the Midwest, bypassing the Joint Line and the existing BNSF and UP main line rail corridors. The project has not yet secured financing. In February 2007 the Federal Railroad Administration rejected the project’s application for a $2.3 billion loan guarantee, concluding that the project was too risky to commit public funds. The project has been opposed by some landowners and towns along the proposed route, in particular by the city of Rochester, Minnesota, and the Mayo Clinic.

Buffett acquires Burlington Northern
On November 3, 2009 it was announced that billionaire investor Warren Buffett's Berkshire Hathaway Inc. acquired 77% of Burlington Northern Santa Fe for $34 billion, prompting the Wall Street Journal to write that Buffett is betting on the continued role of coal in the U.S. energy supply. Burlington Northern transports coal that accounts for about 10% of the total U.S. energy supply, with 90% of that mined in the Powder River Basin.

Railroads accused of monopoly on coal transport
In June 2011, coal miner Oxbow Mining filed a federal antitrust complaint claiming that Union Pacific and BNSF Railway colluded with nonparties CSX Transportation and Norfolk Southern Railway to take advantage of a deregulated railroad industry by fixing freight prices for coal and other goods, driving up consumers' electric bills and imposing "broad adverse effects on the national economy." Oxbow is seeking "treble damages" for violations of the Sherman Anti-Trust Act. According to the complaint: "Between July 2003 and June 2007, the defendants increased their market capitalization from approximately $40 billion to approximately $105 billion, or an increase of about 160 percent."

Only seven Class I railroads operate in the United States today, and Union Pacific and BNSF, along with CSX and Norfolk Southern Railroad, control the "vast majority" of freight shipments, according to Oxbow.

Congress deregulated the railroads in 1980 with the intention of introducing competition, but Oxbow says the railroads have "abused the freedoms granted them by deregulation in a number of ways, such as a fuel surcharge that is unrelated to actual fuel costs. As a direct purchaser of rail freight services, Oxbow says it has paid more than $30 million in wrongfully imposed fuel surcharges. Oxbow said the defendants also collude to raise prices by controlling where coal is shipped and the route by which it is sent, driving up the cost of coal.

Before deregulation, freight rates had to be published in tariffs filed with the Interstate Commerce Commission. The 1980 Staggers Act deregulated the industry, which allowed railroad companies to establish contracts without review by the Commission. Congress replaced the ICC in 1995 with the Surface Transportation Board, which Oxbow said had even more restricted powers to oversee shipping rates.

Oxbow said the small numbers of railroads deliberately prevent competition. For example, if Oxbow wants to ship coal from the Powder River Basin of Montana and Wyoming, it must choose between United Pacific and BNSF, and United Pacific won't ship Oxbow coal west, so the company does not compete with BSNF customers: "As a result of defendants' anticompetitive conduct, the defendants received increased profits that were not attributable to any changes in their costs. In fact, by 2008, UP's average revenue per carload had 54.5 percent over what it was in 2004; and its overall revenues for coal shipments from Colorado/Utah increased [by] over $300 million during that period," Oxbow claimed.

Oxbow Mining is part of the Oxbow Corporation, a privately-owned company founded by William I. Koch, the brother of David Koch and Charles Koch who operate Koch Industries.

Group Seeks to Stall Montana Coal Railroad
On July 27, 2010, the Northern Plains Resource Council asked the federal Surface Transportation Board to reconsider its approval of a proposed $550 million railroad that would open new areas of Montana's section of the Powder River Basin to coal mining. The group wants a new environmental impact study done on the railroad proposal, noting that many things have changed since the Board approved the original plan.

Exports
In March 2011, president of the Association of American Railroads Ed Hamburger said U.S. coal bound for export is the most likely driver of coal shipment growth for freight railroads. The rail industry reportedly wants to keep coal a big part of the U.S. energy mix, frequently noting that revenue from coal shipments accounts for about 25% of railroads' revenue and 20% of its jobs, and opposes laws and policies antithetical to coal use. More than two-thirds of U.S. coal is shipped to its final destination by railroad every year. Hamburger expects coal shipments to increase through large East Coast ports like those in Norfolk, Virginia, which are served by CSX and Norfolk Southern. In the West, he said, BNSF and Union Pacific could use planned export terminal developments and expansions along the Pacific coast of the US and Canada. The projects, however, face steep political opposition and have yet to secure the necessary permits.

International shipments of US coal are expected to grow 7.7% to 88 million short tons in 2011, according to March 2011 estimates by the U.S. Energy Information Administration. Coal for steelmaking is expected to account for 68% of exports. While export coal typically provides railroads with their highest margin business, it so far accounts for a small portion -- about 7.5% -- of overall U.S. coal production, which the EIA estimated at 1.08 billion in 2010.

Exports to Asia
In September 2010 Peabody Energy announced that "Coal's best days are ahead." Peabody stated that exports of coal from the Powder River Basin in Montana and Wyoming, primarly to Asia, will be central to its expansion goals, through coal exports from northwest United States ports.

Union Pacific (UP) and BNSF are the two major Class I railways that operate in the coal-rich Powder River Basin. Coal trains typically employ 100-125 cars to haul Powder River Basin coal to electric utilities. The rail cars do not carry other commodities and return back to the mines empty. Coal from Powder River Basin mines in Wyoming and Montana is transported through Montana on the BNSF main line from both mines in Wyoming and Montana to Laurel, Montana. In the first six months of 2010, 3.5 million tons of coal was shipped from Powder River Basin Coal mines to Oregon and Washington for use in electrical generation and combined heat and power applications.

In 2008, BNSF CEO Matt Rose said BNSF is talking to potential customers abroad about exporting Powder River Basin coal, particularly to Asia, and looking at the logistical challenges of exporting large quantities.

A 2011 Western Organization of Resource Councils Report, "Exporting Powder River Basin Coal: Risks and Costs" notes that an export market of 140 million tons a year of coal would require around 60 unit trains traveling to or from the West Coast and the Powder River Basin every day: "Again, for comparison, current volume of traffic is no more than 10 unit trains per day. Nearly all of the rail line from the Powder River Basin to the West Coast would eventually need upgrades to carry additional weight or expand additional tracks to accommodate an export market of this size."

The report goes on to note that "a coal export facility with the capacity to ship 20-30 million tons per year of Peabody Powder River Basin coal would result in the export of 35-53 million tons of CO2 per year. Exporting 140 million tons a year would produce roughly 280 million tons of CO2 per year."

BNSF and UP invested more than $4 billion to increase capacity in recent years. BNSF laid nearly 3,000 miles of track from 2007 to 2009.

Distribution of U.S. Coal
The figures below represent the amount of coal exported from state to state within the U.S. Coal that is mined throughout the United States is often exported from its state of origin to other states in the country. Primarily, this coal is transported by the nation's railroad system but this coal may also be transported by truck, river or other means not indicated below.

The table below shows the total amount of coal that is transported by rail to its state of destination. To view a further breakdown of the data, and to see how much coal is transported by means other than rail, please visit the Energy Information Administration report referenced below. The following data is from 2008 and is measured by thousand short tons per unit.

Legislative proposals
The following are recent legislative proposals affect railroads:
 * the Freight Rail Infrastructure Capacity Expansion Act of 2007 (S. 1125 and H.R. 2116)
 * the Railroad Competition and Service Improvement Act of 2007 (S. 953 and H.R. 2125)
 * the Railroad Antitrust Enforcement Act of 2007 (S. 772 and H.R. 1650).

Industry Associations

 * National Coal Transportation Association
 * Western Fuels Association
 * Alliance for Rail Competition

Related SourceWatch articles

 * Coal Exports from Northwest United States Ports
 * Burlington Northern Santa Fe Railroad
 * Union Pacific
 * Wyoming and coal
 * Texas and coal
 * Montana and coal

External resources

 * "Rail Transportation of Coal to Power Plants: Reliability Issues," Congressional Research Service, September 26, 2007
 * "The Railroad Competition and Service Improvement Act Why Government-Enforced 'Competition' Will Not Work," Competitive Enterprise Institute, 12/11/08
 * "Coops Support Railroad Competition Legislation," Cooperative Connection, January 2008